August 10, 2011 / 5:53 PM / 6 years ago

UPDATE 3-Rona profit tumbles on slow home-improvement sales

* Q2 EPS C$0.28 vs forecast C$0.40

* Sales at stores open at least a year down 9.6 pct

* Second-half same-store sales seen little changed or down

* Retailer blames weather, weak consumer confidence

* Shares fall 5 pct on Toronto Stock Exchange (Adds quotes, detail from earnings call, updates share price)

By S. John Tilak and Allison Martell

TORONTO, Aug 10 (Reuters) - Rona Inc’s RON.TO quarterly profit dropped a steeper-than-expected 40 percent as Canadian consumers cut spending on its home improvement products, sending its shares down 5 percent.

The reluctance of homeowners to invest in big-ticket renovation projects, the lifeblood of Rona’s business, has plagued Canada’s No. 1 do-it-yourself chain.

Second-quarter sales at its established stores fell 9.6 percent, following a 12.6 percent decline in the first quarter.

“The results were ugly -- in all capital letters and bold,” Edward Jones analyst Brian Yarbrough said. “People are just not willing to spend.”

Second-quarter earnings fell to C$39.5 million ($39.9 million), or 28 Canadian cents a share, from C$66.3 million, or 51 Canadian cents, a year before.

Analysts on average were looking for earnings of 40 Canadian cents, according to Thomson Reuters I/B/E/S.

Revenue fell 2 percent to C$1.37 billion, missing the average analyst estimate of C$1.43 billion.

The company sees same-store sales staying little changed or falling up to 5 percent in the second half of the year. It sees earnings in the second half to be little changed from the year earlier.

HIT HARD BY CONSUMER CONFIDENCE

Consumer spending on home improvement products has remained tepid, never fully returning though the country’s economic downturn eased over the past year. Rona’s more expensive discretionary products such as solariums and patios are seen as a low priority when budgets are tight.

“We faced very challenging conditions in the quarter, especially in April and May, when weather was not favorable for construction and renovation projects,” said Chief Executive Officer Robert Dutton on a conference call.

Dutton also said the company was hurt by consumers’ continuing prudent spending on renovation.

Yarbrough said weather was not the issue. Same-store sales have not grown on an annual basis since 2006, he said.

“The consumer spending environment is weak, but more so in home improvement.”

The company competes with Home Depot Inc (HD.N) (HD.N) and Lowe’s Cos Inc (LOW.N). Both companies reported falling same-store sales in the first quarter of 2010 and are due to report second-quarter results next week.

Those companies do not break out their Canadian sales, however. Yarbrough said Rona may be facing a tougher environment north of the border.

“The industry overall is tough in Canada. Home Depot and Lowe’s are struggling as well in Canada,” Yarbrough said.

The stock, down 24 percent since the start of the year, fell 5 percent to C$10.20 on the Toronto Stock Exchange. It hit a near-three-year low of C$10.03 earlier in the day. ($1=0.99 Canadian) (Editing by Frank McGurty)

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